- Title
- A Framework for Identifying the Sources of Local-Currency Price Stability with an Empirical Application
- Author(s)
- Pinelopi Koujianou Goldberg Pinelopi Koujianou Goldberg (Princeton University, NBER, and BREAD)
- Rebecca Hellerstein Rebecca Hellerstein (Federal Reserve Bank of New York)
- Abstract
- The inertia of the local-currency prices of traded goods in the face of exchange-rate changes is a well-documented phenomenon in International Economics. This paper develops a framework for identifying the sources of local-currency price stability. The empirical approach exploits manufacturers? and retailers? first-order conditions in conjunction with detailed information on the frequency of price adjustments in response to exchange-rate changes, in order to quantify the relative importance of markup adjustment by manufacturers and retailers, local-cost non-traded components, and nominal price rigidities, in the incomplete transmission of exchange-rate changes to prices. The approach is applied to micro data from the beer market. We find that on average, 54.1% of the incomplete exchange rate pass-through is due to local non-traded costs; 33.7% to markup adjustment; and 12.2% to the existence of price adjustment costs.
- Creation Date
- 2008-03
- Section URL ID
- CEPS
- Paper Number
- 185
- URL
- https://gceps.princeton.edu/wp-content/uploads/2017/01/185goldberg.pdf
- File Function
- Jel
- C010, E500, F130, F320, G100
- Keyword(s)
- currency prices, exchange rates
- Suppress
- false
- Series
- 3